South Coast Air Quality Management District

BOARD MEETING DATE: March 16, 2001 AGENDA NO. 34

REPORT:

Annual RECLAIM Audit Report for the 1999 Compliance Year

SYNOPSIS:

The annual report on the NOx and SOx RECLAIM program is prepared in accordance with Rule 2015 - Backstop Provisions. The report assesses emission reductions, average annual price and availability of RECLAIM Trading Credits (RTCs), job impacts, compliance issues, and other measures of performance for the sixth year of this program.

COMMITTEE:

Stationary Source, February 23, 2001, Reviewed

RECOMMENDED ACTION:

Approve the attached report.

Barry R. Wallerstein, D. Env.
Executive Officer

Background

The AQMD Governing Board adopted the RECLAIM program on October 15, 1993 with the goal of providing facilities with added flexibility in meeting emission reductions requirements while lowering the cost of compliance. RECLAIM was designed to meet all state and federal requirements for clean air programs and a variety of performance criteria to ensure protection of public health, air quality improvement, effective enforcement, implementation costs, and minimal job impacts.

RECLAIM represents a significant departure from traditional command-and-control regulations. Therefore, the RECLAIM rules provide for annual program audits to verify that the program objectives are being met. Rule 2015 requires annual audits focusing on specific issues, as well as a more comprehensive three-year audit. The three-year audit was presented to the Governing Board May 8, 1998 and the most recent annual audit was presented March 17, 2000. Additionally, staff prepared a report thoroughly reviewing the RECLAIM program in support of the Governing Board’s October 20, 2000 public hearing to ratify certain findings pertaining to the program as required by California Health and Safety Code Section 39616(e). The October report was a retrospective look at RECLAIM’s performance. Staff also prepared a "White Paper" that looked forward to the future of the program and made recommendations for stabilization of NOx RTC prices. The White Paper was presented to the Governing Board at its January 19, 2001 meeting. The attached report presents the annual audit for the 1999 compliance year, which was the program’s sixth compliance year. Pursuant to Rule 2015, the audit report is presented for a public hearing and will be included in AQMD's annual performance report to the California Legislature.

Audit Findings

The audit findings indicate that RECLAIM met its objectives during the 1999 compliance year. In particular, the analysis demonstrates that:

Aggregate actual emissions from RECLAIM facilities were below Allocations during the 1999 compliance year.
The RECLAIM universe consisted of 331 facilities as of the end of the 1998 compliance year. There was a net change of thirty additional facilities in the RECLAIM universe included during the 1999 compliance year. Thus, there were 361 facilities in the RECLAIM Universe at the end of the 1999 compliance year.
An active trading market for RTCs has developed. More than $278 million in RTCs have been traded since the adoption of RECLAIM, of which over $182 million occurred in Calendar Year 2000. Although aggregate NOx emissions were slightly below aggregate allocations, there were not sufficient NOx RTCs available to meet the demand of RECLAIM facilities. Average prices, excluding RTCs that were transferred with a price of $0 (such as transfers between facilities of common ownership), for NOx transactions occurring in calendar year 2000 exceeded the backstop price of $15,000 per ton established in Rule 2015. The average prices for NOx transactions occurring in all other years and for SOx transactions in all years were well below $15,000 per ton. Average prices during 1998, 1999, and 2000 are summarized below:

1998	1999	2000
$451 per ton for 1998 NOx RTCs $1,971 Per ton for 2003 NOx RTCs $1,859 per ton for 2010 NOx RTCs $303 per ton for 1998 SOx RTCs $1,760 Per ton for 2003 SOx RTCs $1,760 per ton for 2010 SOx RTCs	$1,827 per ton for 1999 NOx RTCs $4,115 Per ton for 2003 NOx RTCs $4,114 per ton for 2010 NOx RTCs $784 per ton for 1999 SOx RTCs $1,548 Per ton for 2003 SOx RTCs $1,548 per ton for 2010 SOx RTCs	$45,609 per ton for 2000 NOx RTCs $13,809 Per ton for 2003 NOx RTCs $4,915 per ton for 2010 NOx RTCs $2,426 per ton for 2000 SOx RTCs $2,951 Per ton for 2003 SOx RTCs $2,951 per ton for 2010 SOx RTCs

Once again, the vast majority of RECLAIM facilities complied with their Allocations during the 1999 compliance year. Thirty-one facilities exceeded their Allocations during this compliance year. Failure to reconcile emissions with RTCs held was the leading cause of exceedance.
RECLAIM had minimal impact on employment during the 1999 compliance year, as in previous years. Nine facilities attributed RECLAIM with generating a total of eleven jobs. Two facilities experienced a total of six jobs lost. One of these facilities indicated that both of its two lost jobs were due to RECLAIM and the other facility attributed an unspecified portion of its four jobs lost to RECLAIM. Twenty RECLAIM facilities shut down or went out of business in 1999. None of the operators of these facilities indicated that RECLAIM contributed to their decisions to cease operations.

AQMD staff plans to propose amendments to RECLAIM at the Governing Board’s May 2001 meeting. The purpose of the proposed amendments will be to stabilize the price of NOx RTCs at a reasonable level and to encourage facilities to plan their compliance strategies in advance. Staff will continue to monitor and assess the performance of the RECLAIM program and work closely with RECLAIM participants to ensure continued program success.

Attachment

Annual RECLAIM Audit Report for the 1999 Compliance Year

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URL: http://www.aqmd.gov/hb/2001/010334a.html